Retirement Roulette

Don't Gamble With My Pension

Frequently Asked Questions

What kind of pension plan is CalSTRS and CalPERS?

CalSTRS and CalPERS are defined benefit plans that consists of the Defined Benefit (DB), Defined Benefit Supplement and the Cash Balance benefit programs. These programs provide guaranteed retirement, disability and survivor benefits to more than 3 million public servants and their families, including school teachers, firefighters, nurses, clerical workers and police. CalSTRS is currently the third-largest public pension fund in the US, with a value of $125 billion.

The DB program guarantees lifetime retirement benefits based on age, years of service and final compensation at the time of retirement. The DB program also pays out disability and survivor benefits. The DB Supplemental Program and the Cash Balance Plan are hybrid DB/DC plans. Like DC plans, at retirement you have the money in your account, not a life-time monthly allowance set by a formula. Like DB plans, you cannot lose the principal in your account due to market fluctuations.

How would Richman's bill, the proposed constitutional amendment, ACA 5 (and other similar proposals), change retirement?

Richman has said that public employees receive far-too-generous pension benefits.
The bill would change retirement in four ways:

  • Require anyone hired after July 2007 to enroll in a DC plan;
  • Allow members currently in DB programs to roll their retirement over to the new DC programs, relinquishing all rights to switch back;
  • Authorize government employers to establish their own DC plans and outsource administration and investment to private sector companies;
  • Allow the state to contribute an amount from zero to some as-yet-to-be-determined maximum to employee retirement accounts.

The Howard Jarvis Tax Association's initiative would establish a maximum 6% employer contribution for most employees while permitting additional employer contributions for peace officers, firefighters and those not in Social Security.

Pension reform will only affect new employees. Why should I care?

As younger workers are forced into the new plan, funds will be siphoned away from the current system, meaning less money for investments, for COLA's, purchasing power or for new benefits.

Will forcing all new public employees into DC plans solve the state's fiscal problems?

No. Costs of the current DB plan won't go away. The state will have to pay for the start-up costs of the new DC plans, estimated at hundreds of millions, while funding the current DB plan. It will cost schools and taxpayers more if they pay for death and disability benefits programs and Social Security for employees in DC plans.

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